Republican presidential candidate Donald Trump claimed that the loan rates Sen. Ted Cruz received during his 2012 Senate run were “lower than you could get, lower than anybody could get.” In fact, the evidence shows the interest rates Cruz reported were attainable at the time.
One of Cruz’s loans — a line of credit from Citibank — carried an interest rate of “prime – floating,” according to his personal financial disclosure form. We don’t know what type of line of credit Cruz received, but TD Bank currently advertises a home equity rate lower than that for “qualified customers” — prime minus 0.5 percent. PNC Bank, too, offers a rate lower than prime.
Citibank’s website currently says its home equity lines carry rates of prime plus an additional margin. When we asked Citibank about the prime floating rate Cruz secured for his line of credit in 2012, Kamran Mumtaz, a Citi spokesman, told us: “The interest rate offered was consistent with the product offering at the time.”
A floating rate is a variable interest rate that can change — in this case, it would change if the prime rate changes.
Cruz’s loans became a campaign issue in mid-January when the New York Times reported that he had taken out large loans from Goldman Sachs and Citibank to help finance his 2012 Senate campaign but failed to disclose those loans on campaign finance reports filed with the Federal Election Commission. Cruz instead reported that he was making personal loans to his campaign from his own funds. He later — after the primary election — disclosed the loans in personal financial disclosure reports to the secretary of the Senate, but not the purpose of the loans.
Cruz said his failure to properly report the loans to the FEC was “an inadvertent filing error” and wrongly claimed that the loans were “transparent.” We covered the timeline of Cruz’s loans and when he disclosed them in our Jan. 15 story “Cruz Loans Not ‘Transparent.’ ”
On Jan. 31 on ABC’s “This Week,” Trump attacked Cruz for not only the nondisclosure of the loans but the interest rates Cruz had received.
Trump, Jan. 31:But [Cruz is] a liar. He didn’t even put down on his financial disclosure forms that he borrowed money from banks at low interest loans, lower than you could get, lower than anybody could get. He’s got these favorable deals from banks on Wall Street and he never put it down on his financial disclosure forms.
Cruz reported on the personal financial disclosure form filed with the Senate in July 2012 that he got a line of credit at “prime – floating” from Citibank for $250,001 – $500,000 (that’s the range he checked on the form) and a margin loan from Goldman Sachs at “3 percent, floating” for $100,001 to $250,000. Both in 2012.
In May 2013, Cruz filed his annual personal financial disclosure report to the Senate, which shows the Goldman Sachs loan had increased in 2012 to the $250,001-$500,000 range. He reported the same interest rates. Cruz’s wife, Heidi Nelson Cruz, was an executive with Goldman Sachs at the time.
Are those rates “lower than anybody could get” and “favorable deals from banks on Wall Street”?
We asked Greg McBride, chief financial analyst for Bankrate.com, who told us in an email: “Both rates were certainly possible in the marketplace at the time.”
Interest rates are, of course, dependent upon the borrower’s credit rating, income and ability to repay the loan, and the amount borrowed. But it’s not unusual for a line of credit loan, like Cruz says he obtained from Citibank, to have a variable interest rate of the prime rate — or lower. As we said, TD Bank is currently offering a variable rate lower than prime on home equity lines of credit. That advertised rate is 3 percent.
In 2012, the prime rate — which is, explains the Federal Reserve, the rate posted by most of the top 25 U.S. commercial banks — was 3.25 percent, a quarter of 1 percent lower than what it is today.
In its Jan. 13 article on Cruz’s loans, the New York Times also didn’t detect anything unusual about the rates Cruz was given, writing: “Both loans had floating interest rates around 3 percent, according to Mr. Cruz’s Senate disclosures, which appear to be generally in line with rates available to wealthy borrowers at that time.”
In fact, rates can be lower for higher amounts of borrowing. We found that’s the case at PNC Bank, which advertises variable rates just under prime for borrowing amounts of $100,000 or more, and rates above prime for lower borrowing amounts.
As for Cruz’s Goldman Sachs loan, that was a margin loan, which is borrowing against the value of securities or investments in one’s portfolio. Margin loan rates vary. A 2000 paper published in the New England Economic Review by Peter Fortune, a senior economist with the Federal Reserve Bank of Boston, says banks set margin loan rates based on the “broker call money rate” or the prime rate or their own base rates.
Fortune, September/October 2000, New England Economic Review: The rate charged their margin customers by brokers is typically quoted as a premium over the broker’s “base lending rate.” A widely used base lending rate is the broker call money rate, though some brokers use the bank prime rate and others define their own base rate using information on a range of market interest rates.
The call money rate is currently 2.25 percent, so some lenders would charge a margin loan rate at something higher than that. In 2012, that call money rate was lower — 2 percent.
As with home equity lines of credit, margin loan rates can be lower for higher borrowing amounts. Fidelity currently advertises on its website that its margin rates are “as low as 3.75%,” if one borrows more than $500,000. “The rate you pay depends on your outstanding margin balance—the higher your balance, the lower the margin rate you are charged,” Fidelity says.
We asked Goldman Sachs to comment on the 3 percent floating rate that Cruz reported having on his margin loan in 2012, which totaled something between $250,001 and $500,000, but we have not received a response. We also asked the Trump campaign for support for the claim that Cruz got a “favorable deal” and rates “lower than anybody could get.” We haven’t received a response to that request, either.
From the available evidence, the interest rates Cruz reported were attainable at the time.
Clarification, Feb. 5: We updated the story to make clear we don’t know what type of line of credit Cruz received in 2012.